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Two Models of Speculative Bubbles Dynamics for Cryptocurrency Prices

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  • Mikhail Perepelitsa

Abstract

The problem of investing into a cryptocurrency market requires good understanding of the processes that regulate the price of the currency. In this paper we offer a view of the cryptocurrency market as an environment for realization of self-organized speculative schemes that result in the formation of a characteristic price bubble. We use a microscale, agent-based model to simulate the system behavior and derive a macroscale ordinary differential equation (ODE) model to estimate the price and the return rates observed in the simulated agent-based model. We provide a formula for the total risk of the system expressed as a sum of two independent components, one being characteristic of the price bubble and the other of the investor behavior.

Suggested Citation

  • Mikhail Perepelitsa, 2022. "Two Models of Speculative Bubbles Dynamics for Cryptocurrency Prices," Applied Economics and Finance, Redfame publishing, vol. 9(4), pages 3646-3646, November.
    • Handle: RePEc:rfa:aefjnl:v:9:y:2022:i:4:p:3646
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    References listed on IDEAS

    as
    1. Misha Perepelitsa & Ilya Timofeyev, 2022. "Self-sustained price bubbles driven by digital currency innovations and adaptive market behavior," SN Business & Economics, Springer, vol. 2(3), pages 1-15, March.
    2. Perepelitsa, Misha & Timofeyev, Ilya, 2019. "Asynchronous stochastic price pump," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 516(C), pages 356-364.
    3. Levy, Moshe & Levy, Haim & Solomon, Sorin, 1994. "A microscopic model of the stock market : Cycles, booms, and crashes," Economics Letters, Elsevier, vol. 45(1), pages 103-111, May.
    4. Olivier J. Blanchard & Mark W. Watson, 1982. "Bubbles, Rational Expectations and Financial Markets," NBER Working Papers 0945, National Bureau of Economic Research, Inc.
    5. Levy, Moshe & Solomon, Sorin, 1997. "New evidence for the power-law distribution of wealth," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 242(1), pages 90-94.
    6. Levy, Haim & Levy, Moshe & Solomon, Sorin, 2000. "Microscopic Simulation of Financial Markets," Elsevier Monographs, Elsevier, edition 1, number 9780124458901.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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